Author
LoansJagat Team
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5 Min
09 Jun 2025
Benefits of GST: Key Reasons Why GST is a Game Changer for India
Pitambari Devi, a papad-maker from Rajasthan, struggled with high taxes and delays before GST. She paid 12.5% VAT locally and 2% CST on out-of-state sales. Deliveries to Gujarat took 5 days, and she spent ₹8,000/month on accounting.
After GST launched in 2017, things changed:
- Flat 5% GST across India
- Delivery time cut to 2 days
- Accounting costs dropped to ₹2,500/month
- She claimed ₹3,000/month in tax credits
In just 18 months, production rose from 50 kg to 200 kg/month, revenue grew to ₹1.2 lakh, and she hired 3 women
locally.
“GST helped me grow beyond my village,” she says.
Unified Tax Structure Across the Nation
India's Goods and Services Tax (GST) system is designed to create a unified tax structure across the nation, replacing multiple indirect taxes with a single, comprehensive tax. This simplification aims to reduce tax-related complexities and promote a seamless business environment.
Read More – Disadvantages of GST
GST Tax Slabs and Their Application:
GST in India is structured into several tax slabs, each applicable to different categories of goods and services. These slabs are:
- 0%: Essential items like milk, eggs, and educational services.
- 5%: Items such as coal, edible oils, tea, domestic LPG, and life-saving drugs.
- 12%: Goods like butter, ghee, computers, fruit juice, and packed coconut water.
- 18%: Products including hair oil, capital goods, toothpaste, industrial intermediaries, and toiletries.
- 28%: High-end items like luxury cars, motorcycles, consumer durables (e.g., ACs, fridges), and sin goods like cigarettes and aerated drinks.
- 3%: Gold and precious stones.
0.25%: Diamonds and precious stones.
Transaction Stage | Sale Price (₹) | GST Rate | GST Amount (₹) | Total Invoice (₹) | Input Tax Credit Claimed (₹) | Net GST Payable (₹) |
Manufacturer to Wholesaler | 1,00,000 | 18% | 18,000 | 1,18,000 | - | 18,000 |
Wholesaler to Retailer | 1,50,000 | 18% | 27,000 | 1,77,000 | 18,000 (from Manufacturer) | 9,000 |
Retailer to Consumer | 2,00,000 | 18% | 36,000 | 2,36,000 | 27,000 (from Wholesaler) | 9,000 |
Notes:
- Each party in the supply chain adds value and charges GST on the new value.
- They also claim ITC for the GST they paid on their purchases.
- The final consumer bears the full GST (₹36,000 in this case), with no input tax credit.
This system ensures tax is levied only on value addition, making GST efficient and transparent.
Elimination of Cascading Effect of Taxes
One of the primary objectives of the Goods and Services Tax (GST) in India is to eliminate the cascading effect of taxes, commonly referred to as "tax on tax." Prior to GST, businesses paid taxes on their purchases (input taxes) and also on their sales (output taxes), without the ability to offset the input taxes against the output taxes. This led to an increase in the overall cost of goods and services, which was ultimately borne by the consumer.
Under the GST regime, businesses can claim Input Tax Credit (ITC) for the taxes paid on their purchases, which can be offset against the taxes collected on their sales. This mechanism ensures that tax is levied only on the value added at each stage of the supply chain, thereby eliminating the cascading effect.
Comparison of Tax Impact: Pre-GST vs Post-GST:
Particulars | Pre-GST Regime | GST Regime |
Service Fee | ₹50,000 | ₹50,000 |
Office Supplies (Input) | ₹20,000 | ₹20,000 |
Tax on Service Fee | 15% Service Tax = ₹7,500 | 18% GST = ₹9,000 |
Tax on Office Supplies | 5% VAT = ₹1,000 | 5% GST = ₹1,000 |
Input Tax Credit Available | Not Applicable | ₹1,000 (on office supplies) |
Net Tax Payable | ₹7,500 + ₹1,000 = ₹8,500 | ₹9,000 − ₹1,000 = ₹8,000 |
Total Cost | ₹78,500 | ₹78,000 |
Tax Saving under GST | - | ₹500 |
Note: Under the GST regime, the ability to claim Input Tax Credit (ITC) reduces the total tax outflow. This directly demonstrates how GST eliminates the cascading effect of taxes, which was a major flaw in the previous tax structure.
Simplified Compliance and Increased Transparency
Aspect | Pre-GST Scenario | Under GST | Example |
Number of Returns | Multiple returns under VAT, Service Tax, Excise | 12 standard annual returns for regular taxpayers | Reduced filing from 20+ returns to 12 per year (GSTR-1 & GSTR-3B monthly). |
Registration Threshold | ₹5 lakh for VAT (varied by state) | ₹40 lakh for goods, ₹20 lakh for services | A trader with ₹30 lakh turnover now avoids mandatory registration. |
Composition Scheme | No such simplified option | Available for businesses with turnover < ₹1.5 crore (tax rates 1%-6%). | A small bakery earning ₹50 lakh opts for 1% tax under Composition Scheme. |
Digital Compliance | Manual filing, physical visits | Online registration, filing, payment via GSTN portal | A clothing store registers and files returns without visiting any tax office. |
E-Invoicing | No standard format | Mandatory for businesses with turnover > ₹5 crore (from 2020 onwards) | A tech firm generating ₹6 crore turnover now issues auto-validated e-invoices. |
E-Way Bill | Physical waybills; varied state rules | Uniform e-way bill system for movement of goods > ₹50,000 | A manufacturer in Pune shipping goods to Delhi generates an e-way bill online. |
Input Tax Credit (ITC) | Limited or no credit across taxes (e.g., VAT credit not usable against Service Tax) | Seamless ITC available on all inputs across states and sectors | A firm buying ₹1 lakh of raw materials claims ₹18,000 GST as ITC |
Real-Time Reconciliation | Manual matching, high error chances | Automated matching of invoices between buyer and seller returns | Errors reduced; mismatch alerts auto-generated. |
Tax Payment | Separate payments to state and central departments | Single online payment through GSTN gateway | A retailer pays ₹8,000 GST monthly in one unified payment |
Transparency & Audit Trail | Fragmented, state-specific records; hard to verify transactions | All transactions digitally recorded; easy traceability and audit | Helps reduce tax evasion and detect fake invoices |
Enhanced Logistics and Supply Chain Efficiency
The implementation of the Goods and Services Tax (GST) has significantly transformed India's logistics and supply chain landscape. By eliminating inter-state tax barriers and streamlining processes, GST has led to substantial improvements in efficiency and cost-effectiveness.
Also Read – GST on Commercial Rent
1. Reduction in Logistics Costs:
- Pre-GST Scenario: Logistics costs in India were approximately 14% of the total value of goods, higher than the global average of 6–8%.
- Post-GST Impact: GST has facilitated smoother inter-state transportation, leading to a reduction in logistics costs to about 10–12% of the total value of goods.
2. Increased Average Truck Travel Distance
- Pre-GST: Trucks typically covered an average distance of 225 km per day.
- Post-GST: With the removal of state border checkposts and reduced transit times, trucks now cover an average distance of 300–325 km per day.
3. Reduction in Transit Time
- Pre-GST: Trucks spent a significant amount of time at state borders due to various taxes and checks.
- Post-GST: The introduction of the e-Way Bill and the elimination of multiple state taxes have reduced transit times by up to 30%.
4. Streamlined Warehouse Operations
- Pre-GST: Businesses were required to maintain separate warehouses in each state to comply with different tax regimes.
- Post-GST: GST has allowed businesses to centralise their warehouses, leading to reduced inventory holding costs and improved supply chain efficiency.
5. Enhanced Supply Chain Transparency
- Pre-GST: The logistics sector faced challenges related to documentation and compliance, leading to inefficiencies.
- Post-GST: The implementation of digital tools like e-Way Bills and electronic invoicing has improved traceability and accountability in the supply chain.
Conclusion
Through the creation of a single market, ease of compliance, and transparency, the Goods and Services Tax (GST) has significantly altered India's indirect tax system. In addition to making dealing with customers easier, GST has created the groundwork for long-term economic growth by reducing the cascading effect of taxes, promoting interstate trade, and improving supply networks. It is a groundbreaking reform that is accelerating India's economic integration and efficiency.
Faqs
Q. How has GST simplified taxation?
It replaced multiple indirect taxes with a single, streamlined tax system.
Q. What is the benefit of Input Tax Credit (ITC) under GST?
ITC allows businesses to claim credit for the tax paid on purchases, reducing overall tax liability.
Q. Who needs to register for GST?
Businesses with annual turnover above ₹40 lakh (goods) or ₹20 lakh (services) must register for GST.
Q. How has GST helped small businesses?
GST offers simpler compliance, threshold exemptions, and the Composition Scheme to support small enterprises.
Q. What is an e-Way Bill?
An e-Way Bill is a digital permit required for transporting goods worth over ₹50,000 between states.
Q. Can GST returns be filed online?
Yes, all GST registrations, payments, and return filings are done online via the GST portal.
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LoansJagat Team
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